Equity Analysis /
Egypt

Palm Hills Developments: 1Q19 – A slow start to the year

    Al Ahly Pharos Securities Brokerage
    11 June 2019

    Kicking off with slow sales

    • Sales in 1Q19 stood at EGP2.2 billion, up 5.0% y/y and down 14.7% q/q, almost all of which were residential sales, with Palm Hills Alexandria being the biggest contributor.
    • The 28.6% y/y and 51.1% q/q decline in 1Q19 deliveries, coupled with mediocre sales performance, translated into a 34.6% y/y and 45.8% q/q decrease in revenue, which trickled down to gross profit and net profit that both portrayed annual and sequential declines.
    • Margins were slightly lower y/y, but higher q/q.
    • Net debt increased from EGP1.9 billion at the end of FY18 to EGP2.2 billion at the end of 1Q19. Receivables decreased from EGP18.4 billion at the end of FY18 to EGP17.4 billion at the end of 1Q19.

    Company still holding onto FY19 sales target

    Despite a slow start to the year, Palm Hills Developments (PHDC) is still targeting FY19 sales of EGP14.0 billion, which would imply a 12.3% increase compared to FY18 sales. Unless Badya comes in with an even bigger launch than that witnessed in 2Q18, the company may fall short of its ambitious FY19 sales target. Our EGP3.83/share valuation assumes FY19 sales of EGP8.5 billion.

    Maintain Overweight

    We maintain our Overweight recommendation of PHDC based on our FV of EGP3.83/share.